Hormuz normalisation unlikely anytime soon despite US-Iran agreement

Shipping activity through the Strait of Hormuz remains subdued despite easing tensions, with experts expecting normal operations to resume only after de-mining and security measures are completed

While the US-Iran peace deal was signed two weeks ago, shipping activity in the Strait of Hormuz — one of the world's major maritime chokepoints — remains subdued and normal operations are likely to be around three months away, according to experts.

 

The strait, which is the only route to countries from which India imports a majority of its energy, has been subject to blockades and restricted movement over the past four months, leading to energy shocks across the world and a cooking gas crisis and fuel price hikes in India.

 

With the security situation gradually improving after attacks on vessels killed several Indian seafarers, India's maritime regulator last week issued a fresh advisory, withdrawing its earlier restrictions on shipping lines deploying Indian seafarers in the region.

 

"Considering the latest security situation in the Gulf region... the Directorate clarifies that there is no restriction for Indian ship owners/managers/RPSL agencies to continue the operation of ships and deployment of Indian seafarers in and out of Persian Gulf region by following the security protocols of the Coastal States and security agencies," the Directorate General of Shipping's circular said. It advised stakeholders to continue exercising caution.

 

According to shipping experts, outbound transits (sailing east) continue to dominate traffic through the strait as shipping lines remain wary. According to Peter Sand, chief analyst at market intelligence platform Xeneta, before the conflict began, transits were evenly balanced at 50 per cent for all ship types as well as for containerships.

 

Between March and June, 60 per cent of all transits were outbound (sailing east), while the figure stood at 63 per cent for containerships. Container vessels also remained lower on the priority list of individual countries for evacuation, with greater priority accorded to critical energy shipments.

 

"For as long as more ships are 'escaping' the Arabian Gulf, there is no normalisation of seaborne trade in the Middle East region, with Strait of Hormuz transits specifically," Sand told Business Standard.

 

According to Xeneta, any normalisation will take around three months as the US-Iran agreement does not immediately reopen the strait.

 

"Articles 4 and 5 of the Memorandum of Understanding address the US naval blockade and Iran's obligations not to disrupt traffic, but the agreement sets a 30-day window for minesweeping operations — it may well take much longer. Until those operations are complete, safe and broad-scale transit through normal ship separation schemes cannot resume," he added.

 

Shipping lines are seeing a resumption in traffic but continue to operate cautiously. Japanese shipping giant Mitsui O.S.K. Lines (MOL), which operates 13 Indian-flagged vessels, told Business Standard that it would refrain from commenting on the navigation status or operational measures of individual vessels for safety and security reasons.

 

An executive at French carrier CMA CGM said one of its vessels, the French-flagged CMA CGM Galapagos, successfully transited the Strait on Sunday. "The Group continues to closely monitor developments in the region and remains fully mobilised to ensure the safety and security of its crews," the company said.

 

Amid the disruption, freight rates have surged on major maritime routes by as much as 197 per cent since the conflict began. India itself saw container freight rates to West Asia surge tenfold at the height of the conflict. "Spot rates will keep climbing for as long as the Strait of Hormuz is not fully open," Sand said. "That could be four more weeks or longer depending on how complex the de-mining operation turns out to be."

 

Even as there have been reports of a possible toll or charges for using the strait, there has been no evidence of transit tolls being paid, according to experts, who added that international law does not permit such tolls to be imposed.